COGSA limit applies, despite theft

OOO “Garant-S” sued Empire United Lines and Michael Hitrinov, its president and owner, for losses arising from a third-party theft of Garant’s automobiles.
Garant purchases used automobiles at auctions held in the United States and exports them to Kotka, Finland, for sale in Russia.
Since 2008, Garant engaged Empire, a non-vessel-operating common carrier, to transport hundreds of vehicles per year. In 2010, two of Garant’s BMW vehicles were delivered to Empire's facility in Elizabeth, N.J. Surveillance video showed two men cut a hole in the fence, stole Garant’s two cars, and then returned later for two more vehicles. The next morning the theft was reported to the police, but neither of Garant’s cars was recovered.
Garant sued Empire and Hitrinov, and the defendants moved for partial summary judgment to limit Empire's liability to $1,000 pursuant to the Carriage of Goods by Sea Act (COGSA), and summary judgment on all claims against Hitrinov on the basis of “alter ego” liability.
The defendants contended COGSA limited Empire’s liability to $500 per vehicle, or a total of $1,000.
Garant argued COGSA did not apply to the transaction, and the statute’s limitation of liability provisions were inapplicable because it was denied a fair opportunity to declare a value in excess of $500 per vehicle.
The plaintiff also tried to deprive Empire of COGSA’s limitation of liability by alleging its participation in the thefts, even though Jon Werner, Empire’s attorney, said there was never any criminal complaint, substantiation or evidence Empire or any of its employees had anything to do with the theft.
Werner said he believes the allegation was made in an effort “to come up with an argument to avoid the package limitation.”
The trial court found the plaintiff's arguments were without merit.
It said Empire’s house bills of lading incorporated COGSA by reference and expanded the statute’s coverage from the place of receipt (the Elizabeth facility) or port of loading to the port of discharge or place of delivery.
Empire's practice was to issue house bills of lading upon loading of the cargo onto an ocean carrier, and thereafter electronically transmit copies of the house bills of lading to a shipper.
Because Garant’s vehicles were stolen prior to being loaded onto an ocean carrier, Empire had not yet issued bills of lading for the two vehicles.
Garant argued Empire’s failure to do so precluded COGSA and its terms from applying to the transaction and the related claims, but the district court said that argument was unpersuasive, citing another case (Anvil Knitwear, Inc. v. Crowley Am. Transp., Inc., 2001 WL 856607) that found it is “not unusual to issue a bill of lading after a carrier has taken possession of cargo and courts have regularly held that this does not prevent parties from being bound by its terms.”
As Garant shipped hundreds of automobiles a year with the assistance of Empire, the court said “the parties are bound by those standard terms contained in the bills of lading Empire would have issued to plaintiff upon the loading of its vehicles onto an ocean carrier.”
The court also found without merit Garant’s argument that even if COGSA governs, the statute’s limitation of liability provision is nonetheless inapplicable because it was denied a fair opportunity to declare a value in excess of $500 per vehicle.
A carrier may establish prima facie evidence of fair opportunity by showing that bills of lading specifically state the shipper will have to declare excess liability to avoid the limitation and/or specifically incorporate COGSA by name in the bill of lading and the district court found the language contained in Empire’s bill of lading was sufficient to satisfy that burden.
As to the plaintiff’s contention that COGSA’s limitation of liability provision did not apply because defendants engaged in “unreasonable deviations”—the unproven allegations about theft—the court said the 2nd Circuit has specifically limited the “unreasonable deviation” doctrine “to two situations: geographic deviation and unauthorized on-deck stowage” and has pointedly refused to extend it to include “corrupt or criminal” acts.
Garant’s effort to “pierce the corporate veil” and hold Hitrinov personally liable also failed, with the court stating the plaintiff did not provide sufficient evidence that Hitrinov “so dominated” Empire that the corporation could be called his alter ego, even though he was Empire’s sole shareholder.
The defendant’s motion for partial summary judgment limiting Empire’s liability, and summary judgment on all claims alleged against Hitrinov were granted by the district court.
The grant of summary judgment was upheld on appeal. (OOO “Garant-S” v. Empire United Lines Co., Inc. 2nd Circuit. No. 13–1685–cv. Feb. 5.)
The 2nd Circuit said it agreed with the district court that although a bill of lading was never issued COGSA applied because Empire’s house bill of lading expanded COGSA’s scope to reach the time at which the vehicles came into Empire’s possession at its warehouse.
Empire’s house bill of lading stated it would undertake “responsibility from the place of receipt if named herein or from the port of loading to the port of discharge or the place of delivery if named hereto.” And a previous bill of lading between the parties listed the “place of receipt” as Elizabeth. Because the two automobiles were stolen after arriving at Empire’s facility, COGSA applied by contract to limit the liability for each package to $500.
Garant argued the house bill of lading distinguishes between “place of receipt” and “port of loading,” and limits COGSA’s application to when goods are delivered to the “port of loading” and not the “place of receipt.” As this issue was raised only on appeal and required additional fact-finding, the 2nd Circuit declined to consider it.
The 2nd Circuit also agreed theft is not “unreasonable deviation” that nullifies COGSA’s limitation of liability. Werner said while that might seem odd to a layman, this is also the case with other transportation modes.